Welcome to the latest edition of Veriscope Regulatory Recap! Over the past two weeks, the US and Hong Kong have remained the most active in ongoing crypto regulatory developments, with Honduras and South Korea also taking crucial steps to regulate the sector within their borders.
So, let's take a deeper look into these regulatory advances being made around the globe and their impact on the crypto world.
The US Treasury Secretary Janet Yellen is calling for the need to regulate the crypto space beyond securities laws, while Hong Kong has proposed a licensing regime for over-the-counter (OTC) crypto trading services.
In Central America, the National Banking and Securities Commission of Honduras has prohibited the financial institutions in the country from investing, intermediating, maintaining, or operating virtual currencies. Supervised institutions are also banned from holding crypto-based derivative instruments.
The CNBS unanimously approved and passed the resolution, which highlights legal risks, potential fraud, and operational issues as risks associated with cryptocurrencies while noting the possibility of crypto losing acceptance as a means of payment due to not being legally recognized. The resolution, however, does not affect the operations of exchanges, and they will continue to operate without restrictions.
A crackdown on the crypto industry is also taking place in another part of the world, as the South Korean government planning to boost anti-money laundering measures in the country’s crypto space. It plans to do so by expanding its scope of evaluation to ban unfit crypto business operators into the country’s crypto market and suspend suspicious transactions at the pre-investigation stage.
The Korea Financial Intelligence Unit outlined key policy directions and measures in its annual work plan, which is formed in consultation with industry experts and stakeholders.
Now, let’s take a deeper look into two of these regulatory advances.
In its latest move, Hong Kong is stepping forward with a public consultation to potentially introduce a licensing regime for over-the-counter crypto trading service providers.
The initiative, running until April 12, 2024, focuses on measures to mitigate risks associated with money laundering and terrorism while ensuring investor protection.
The proposed legislation mandates licensing for entities offering crypto spot trading services and strengthens the regulatory authority of the Commission of Customs and Excise (CCE).
On the positive side, this may enhance the security of the trading environment, providing safeguards against fraudulent activities and unlicensed platforms. Such regulatory clarity, in turn, will foster responsible innovation within the virtual asset space, potentially attracting more institutional investments.
However, the introduction of stringent licensing requirements might pose challenges for smaller entities and startups, possibly stifling innovation due to increased compliance costs and operational hurdles. Additionally, while aiming to protect investors, this regulatory shift could lead to a consolidation in the market, favoring larger players over emerging ones.
In a recent Congressional hearing, U.S. Treasury Secretary Janet Yellen emphasized the need for specific legislation to address cryptocurrencies and stablecoins.
Highlighting the absence of a comprehensive regulatory framework, Yellen pointed out the risks associated with the current state of crypto platforms, including volatility and potential financial instability.
She also cited the collapses of Signature Bank and Silvergate as indicators of the systemic risks posed by unregulated stablecoins.
While the prospect of regulation may bolster investor confidence and mitigate run risks associated with stablecoins, it also brings the challenge of navigating an increasingly complex regulatory landscape.
Enhanced oversight could potentially throttle innovation, as crypto businesses and startups might find themselves entangled in stringent compliance requirements.
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